Lykken on Lending

The Lykken on Lending program will feature our Weekly Mortgage Updates with Adam DeSanctis and his MBA Mortgage Minute, and then Les Parker’s TMSpotlight, a macroeconomic perspective on the economy with a music parody. That leads to Matt Graham of MBS Live providing you a rate and market update, followed by David Kittle, Chief Executive Officer at Cypress Mortgage Capital, to discuss mortgage originations. Then we have Alice Alvey of Union Home providing a regulatory and legislative update, then Allen Pollack giving us a Tech Report on the latest technology impacting our industry. Finally, we wrap up the first half of the program with Marc Helm, Senior Executive Partner at Transformational Mortgage Solutions, talking about Loan Servicing and the “Agencies.” All the while Jack Nunnery, who has a 38-year career in mortgage banking, and David will be expounding on each of the regular segments.

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Weekly Mortgage Updates With Adam, Les, Matt, David Kittle, Alice, Allen, Marc Helm, Jack, And David

Welcome, everybody. It is Monday, August 29th, 2022. I survived my birthday. I’ve flipped over another chapter. I’ve had 72 trips around the sun in 2022. I’m so glad to be here with you all and I’m amongst a couple of older guys. We got Marc Helm who’s here. He’s about 30 days older than I am. We’ve got so much younger, Jack Nunnery, who is our co-host here. We got David Kittle and Alice Alvey who’s been here since the beginning of the show.

We’re glad to have our team of professionals talking about everything going on in the mortgage world. There’s so much happening. We’re so grateful to have you here. This show is created by mortgage professionals. It is for mortgage professionals and we’re so great to have you as our audience. Our commitment is to bring you timely information that you can read anytime, anywhere.

I got to give a shout-out to Podetize. That’s who we are using to support our show and get the word out. They’re getting us started. We’re back up in the Apple store. It’s crazy with the success that happens with that. We are reaching over 3,000 downloads of our episodes per day. It is insane. It’s going up and up. It’s so good to have you joining us. Tell others about it. It’s all word of mouth. We’re thrilled to have you here as a part of the show.

I want to say thank you to our sponsors, Finastra. They are Fusion Mortgagebot solutions that personalize the path to power specified information. We can join with any device, go to wherever you want to go and get connected. Also, FormFree, is an automatic check that can be used to satisfy Freddie Mac re-verification. Check out what FormFree is doing.

We had Christy Moss on. I love her. She is a social media magnet. She is like a one-man PR band. She is amazing. Check out that interview we did on June 20th, 2022. Also, Lender Toolkit. They do an awesome job with some great technology. I’m very pleased to have them as a sponsor. Also, Snapdocs working backward from the future. I love that. They’re helping every closing create a flawless experience. Their aim is to eradicate heirs. That’s a good objective. It’s a great goal and aim but that’s a daunting one. They’ve got a plan to do it. Check out Snapdocs.com.

There’s also Total Expert. They unify the data experience through sales, marketing and compliance solution. They bring a cohesive experience across the customer lifecycle. Here’s the best part. It’s a very good CRM. It is the best out there. I encourage you to check out Total Expert. The leaders are using it so you need to use it as well. There’s SimpleNexus. We love what they’re doing. These companies are all some of the leaders in the industry and we’re thrilled to have them as Diamond sponsors.

We also have Candor joining that list of companies. We also have the Mortgage Bankers Association, Lenders One, The Mortgage Collaborative, SuccessKit, Knowledge Coop, Mobility MI, Modex, Mortgage Advisor Tools and then DW Consulting. The list is growing every week. Every week, we have Adam DeSanctis in MBA.

We have Les Parker, Matt Graham, David Kittle who’s new to the show, as well as Alice Alvey who has been here since the beginning of the show. Also, Allen Pollack is joining us with an update on the technology world and Marc Helm talking about loan servicing. That came with the suggestion of our co-host, Jack Nunnery. It’s good to have you all here. We’re excited about what’s going on. Let’s run over to Adam DeSanctis with an update from the MBA with the MBA Mortgage Minute. What do you get for us?

I’m Adam DeSanctis. This is the Mortgage Minute, the latest news from the Mortgage Bankers Association. FHFA announced its intent to establish its federal advisory committee on affordable, equitable and sustainable housing. The committee’s purpose is to provide information, analysis and recommendations to FHFA on these matters. The committee will not set policy or make decisions, nor will they have access to non-public FHFA information.

 

The committee will consist of approximately 20 members serving 2-year terms who have relevant housing experience. FHFA will solicit nominations and applications for membership and a subsequent notice. Finally, it is time to register for MBA’s 2022 annual convention taking place on October 23rd through the 26th, 2022 in Nashville, Tennessee. For more information engine register, visit MBA.org/Annual. Thank you for reading.

I love the MBA and what they’re doing. I got to ask you, guys. For those of you who are going to the conference, are you struggling to find housing? Every single hotel is booked. Here’s a solid tip for you. I’ve found out that the Wyndham Timeshare is right next door to the conference and it’s very affordable. There’s a good tip. I secured my Wyndham vacation home. I didn’t have to go through a program. I’m not signing. They rent them out through Vrbo. Check it out. It’s across the street. This facility is a place to stay. I got a note from Jack Nunnery. He has to go but let’s get over to Les Parker on TMSpotlight with a macro view of the markets. Les Parker, what do you have for us?

The lack of movement of the shape of the yield curve showed how the market absorbed the Fed chairman’s well telegraph words. Meanwhile, investors took Jay Powell’s steadfastness to heart and increase their confidence that a 2023 recession happens. The dollar’s positive reaction to Powell’s speech supports a brief rise in a ten-year T note yield. Look for calmer yet erratic swings within a new range from 2.31% to 2.67%. Catch who’s cold at TMSpotlight.com.

Les Parker teamed up on that one. Good job. Les Parker, you never cease to amaze me with the music that you slipped. It’s so another character for those of you on the list. It is hilarious. Before we start talking about the markets and get everyone in on that, let’s get over to Matt Graham who is here to give us a live report. You need to get a boombox in the background and go, “I’ve got some work for you.”

Maybe someday but not now. Incidentally, Les meant 3.31% to 2.67% and he sent out a note about that. Throw it out there in case anybody caught that. That’s a pretty good range. That’s one of my technical levels as well. Let’s set it up first. The background which has been and continues to be the background rates spiking in June 2022 due to a CPI beat coming in higher than expected during a Fed blackout period. Markets worried about what the Fed was going to say. Rates peaked by the following Wednesday and then fell after the Fed.

In July 2022, weaker economic data helped rates move lower. The market heard what Powell had to say on July 27th at the press conference in two different ways and this is what set us up for the entire month of August 2022. Powell meant to give the impression that the Fed was shifting gears from having a full pedal to the metal stance when it came to rating hikes or policy tightening and would then be more data-dependent going forward.

The market read that as some exhilaration in policy tightening but all it meant was that policy tightening would be more data-dependent going forward and wouldn’t necessarily be slowing down. We heard a course of Fed speakers reiterate that and this is exactly what we expected Powell to say in Jackson Hole but at the same time, we were cognizant of the fact that some market participants may have been misunderstanding Powell and looking for something more conciliatory on Friday.

There were a lot of people that accurately identified what the Fed was thinking. It wasn’t hard if you were paying close attention or reading this show but there was a chorus of market mavens who were saying Jackson Hole won’t matter because the Fed’s been so clear in telegraphing this stuff. There was some under-appreciation of how oblivious some of the markets were to those risks.

When Powell came out and gave the as expected speech, which if you weren’t prepared for it, was very hawkish, the stock market reacted particularly poorly. That may have masked a little bit of the weaker sentiment in bonds, which are free to do their selloff. At the time, there was not a huge reaction in bonds on Friday but if you caught it, it was a big negative reaction in the stocks. Moving higher yet again with yields testing their highest levels in the month, it’s as high as 3.13% and you’d have to go back to the end of June 2022 to see anything higher.

We got that going for us, which isn’t great. The mortgage rate is approaching to 6% depending on how you want to count them. It could be over or under. As far as nuts and bolts in Powell’s speech, it’s hard to pinpoint exactly which comment was the most troubling for those who weren’t prepared for it. I’ll give you a few of the ones that I noticed. It was saying that the neutral estimate of the Fed funds rate of 2.375% is not a place to stop or pause when it comes to rating hikes. It’s reiterating that policy hasn’t leveled off here. It’s just going to be more data-dependent.

He did say as well that the September 2022 rate hike will depend on the totality of data since the July meeting, the historical record cautions strongly against loosening monetary policy prematurely. Price stability will require maintaining a restrictive stance for “some time.” The sobering part of the message, the one that we’ve heard and talked about, is something to the effect of there’s going to be bad times ahead to fight inflation. It’s likely to be some softening of labor conditions and some pain for households as they fight inflation.

Upward pressure on rates waiting to see how the economic data comes in before deciding on the next move. To that end, the key data probably doesn’t start happening until Thursday with ISM Manufacturing but Chicago PMI on Wednesday could move the needle. The biggest market mover is Friday’s jobs report but not as big as the upcoming inflation data may be.

The unfortunate thing about bonds recovering this Friday after jobs report that is maybe lower than expected is that when you look at it against the previous jobs report, which was much higher than expected, it will be viewed as volatility or noise in the bigger picture and perhaps not have any implication about the bigger picture trend in the labor market.

In other words, it would take two job reports to form some consensus on any change that’s occurring in the labor market. We’re up against the ceiling. You could hope for bad data and hurt the feelings of people who want the economy to be strong or you could hope for good data in which case rates probably continue higher. It’s bad news for somebody no matter how you slice it. That’s the mortgage market.

You could hope for bad data and hurt the feelings of people who want the economy to be strong, or you could hope for good data, in which case, rates will probably continue to go higher. It’s bad news for somebody, no matter how you slice it. Share on X

Les Parker texted me. He said, “Be sure to tell Matt how much I appreciate him reading and getting that correction, 3.31% versus 2.31%.” I was going to bring that up but I want to get you fully introduced here and then we could talk about that. What’s going on in this market is insane and crazy at so many levels. I can’t wait for one of the other topics we’re going to be talking about. David Kittle’s going to bring it up but before we go there, let’s get all the regulars to turn on their phones and talk about these interest rates and the current market that we’re in. Let’s go with Marc Helm. Marc, your thoughts on the market from capital markets and interest rates.

It’s very interesting, David. You and I have seen 4 or 5 of these cycles in our industry. It has a good probability of being one of the toughest cycles we’ve ever seen which concerns me greatly for the industry but it also is the time that it grows opportunity. It’s a time tofine-tunee our origination machines, deciding whether we want to get in servicing or not. It’s also a time when we can do more planning than we have because we’re not just bustling every day from the work that’s going on that’s taking us away from the proper planning that needs to run an effective mortgage company.

The cycle will be with us for a while. I don’t have a crystal ball that’s any better than anybody else on the phone but it’s a while. I don’t know what that is. That’s 6 months, 1 year or 2 years. Who knows? I know that other people on the phone have some solid opinions on that so I’m interested in listening to that. We’ll ride this tide like we’ve done on the ones in the past. Hopefully each time we come out of these, we come up with a little bit better of an industry and I think that’ll happen on this cycle too.

Mr. Kittle, what are your thoughts?

It’s good to be here again. Anytime in our industry, you have rising interest rates. It’s not a good thing and they’re going to continue to rise a little bit. They’ve never been so low so to go up this high, I believe that you’re running a company out there so you need to be looking in your market to associate with the bank to where you might be able to originate some of their adjustable rate loan products.

ARMs are going to be coming back into vogue. We’re at 6%. We start to go higher than that. People are on the cocaine candy of 2.5% mortgages over the last few years and then you’re going to have to get into an ARM market. What are caps? What are the adjustments? Learn how to sell them. What’s a fully indexed rate? There are a lot of originators out there that have never done that before.

That’s the interesting part about this cycle. It’s dramatically more pronounced. It’s only because of the heights that we rose to the rate of expansion but it’s astounding to me how many people are living off of the fumes of their savings of what they made in recent years. They’re in the market and they said, “We’re going to price at such a thin margin that everyone cannot compete against us.”

“We think we have enough fuel in the tank to last for a long period doing that. We are going to drive people out. We’re looking at surprising.” That’s nuts. David, I’ll let you jump in because you started making a comment. You’ve seen that. Matt, are you following what others are doing? You report what the markets are doing. Do you have many optics on how people are pricing based on the data that you’re reporting?

Yes. One of the main things that I do behind the scenes is kept a very awesome and accurate mortgage rate index that is a little bit more nimble than some of the other ones out there. It’s very familiar. I never seen anything like the current environment. I mean, I have but not in this particular way. The stratification is ridiculous. You can have big swings depending on how people are quoting. People are quoting very differently. A lot of shops aren’t in the habit of quoting with discount points but points are very valuable.

Some people don’t realize that other loan officers are quoting with points to open the conversation and aren’t necessarily ending up closing at those rates. There are some very big swings between lenders, depending on the day and the lender. There are some weird or innovative, depending on what you want to call it, tactics to compete and try to maximize the market share, which may or may not pay off.

I’m looking at an email and we’re going to talk about this in a minute. Alice has put it under the tagline behind Union Home, “Promises kept.” That’s a great thing because there are companies out there quoting interest rates so you got to be careful about this. Are you monitoring this? What’s being said in the field, there’s a whole compliance department. Alice is going to talk about it in her segment in a minute, some things that are going on that have to do with evaluations. It’s crazy out there but good stuff. Thank you so much. I could get on this topic for a long time. None of you would have a lot to say on this one if he was here with us.

Matt, your rate survey and screens are outstanding. I love what you do here. For everyone that did not hear the correction, Les misspoke. He said 2.31% to 2.67% but he meant 3.31% to 2.67%. We corrected that three times. We got it covered. Matt Graham, thank you so much for being here. Get signed up. If you’re using Matt’s service or interested in getting into the system and learning it, you can get an extended trial period without a credit card required if you put in the LOL for Lykken on Lending Podcast. That’s the signup code. Matt, thank you so much for extending that out to our readers. We’re grateful to have you here every week.

Thank you, David.

I appreciate it. Thanks so much. Let’s get over to David Kittle. This is interesting what you’re going to be talking about, David. Mr. Kittle, it’s good to have you back.

It’s good to be here. David, we had an event for the country. President Biden decided to forgive up to $10,000 in student loan debt. Regardless of how you feel about that from an ethical, moral, political or even legal standpoint, it is going to be challenged over and over again. How are the markets going to react to that? How are Fannie and Freddie going to look at that? How are we going to underwrite that?

 

There’s been a ton of chatter on some underwriting websites that I go back and forth to. Everybody’s concerned about it because we are in forbearance. That forbearance is they’re going to have to start making payments on their student loans after the first of the year if this thing goes as it’s planned. You’ve got people walking away from debt that they signed up for. It is an interesting unintended consequence of what was announced.

What’s so interesting is most of you know I’ve done a whole bunch of Fox interviews. It gets to the point where they call me, “Dave, we need you on at this time. Can you go to this studio?” I’d ask what the topic is. On this very topic back in the Obama administration when Biden was the VP, they called me and said, “Can you come on?” I said, “What’s the topic?” They said, “The forgiveness of student loan debt. You’re going to be debating Dr. Leonard Bernstein.” I go, “He’s a super smart guy. He’s taking that position? How did an economist do that?”

I turned to someone I respect tremendously, Doug Duncan, and said, “Doug, I’m going up against Dr. Leonard Bernstein.” He was like, “Good. What are you talking about?” I said, “Forgiveness of student loan debt.” He said, “That’s a good one. I can’t believe he’s behind this and trying to get it on. He’s supporting what his boss wanted. Dave, when you get on national television, ask this question to Dr. Leonard Bernstein. ‘How does this square up with one of the fundamental laws of economics?’” That’s property rights.

What they’re messing with, Mr. Kittle, is property rights. Some bondholders made investments in The Sallie Mae Fund, the securities out there. They’re talking about devaluing that. That is a personal asset of somebody out there. This is going to get challenged. I doubt it’s going to go through and yet people are saying, “It’s happening. They’re treating it as if it is already done.”

It makes me think back to when you were a chairman in 2009. We were going through bankruptcy cramdown. Dick Durbin was all about taking the strip, tranche and security and lowering the interest rate and amount due. Our argument, which was correct and spot on from MBA, was who’s ever going to invest in these again ever, when your investment can arbitrarily be knocked down in rate and what is owed to you. The unintended consequence from an underwriting and bond standpoint to do this, they never think it through.

It’s politics, getting into someone else’s business. Politicians, stay in your lane. Do not get involved in the mortgage business. You’ll mess it up. Good point. Thank you, David. You phoned in a report and we did talk about John Courson. Is John doing okay? We care about him.

Just so everybody knows, the former MBA Chairman, John Courson was not doing well but he is improving. He’s such a good friend of the industry. He ran MBA for a while. I thought some prayers go out to him, Marsha and the family. Thanks for bringing that up and giving me the opportunity.

He’s one of the gentlemen in this industry. We got a lot of good gentlemen and you’re one of them. We’re glad to have you here, Mr. Kittle. Thank you. I appreciate it.

You’re welcome.

Alice Alvey is here with Union Home Mortgage with her segment. Alice, CMB, is the Vice President of Education Training at Union Home where promises are kept. I love that, Alice. I see that in the logo there. Very good job.

We love it. We use it internally as well. Promises kept. We want to make sure we close loans on time and do all of that but it’s also internally where promises are kept to each other. If I say I’m going to call you back today, I’m calling you back today. If I can’t get it done, I’m going to tell you why. It’s a core value for us both internally and with our customers.

Here are a couple of things. First of all, can I throw in a comment back on the whole rate discussion that we had? I was listening to what Marc, David and you had to say. One important thing too is you were talking about how we get through this cycle. How long is the cycle going to last and these tight margins. How are lenders operating at this? Short-term thinking is driving some of this, trying to keep PE investors, stockholders and shareholders happy.

Servicing valuations are also a part of that. You’ve looked at the companies that are thinking long-term. They will be here for a long time. For the short-term thinkers with those tight margins on how they are operating, don’t follow stupid is what I say when you’re in the mortgage industry. It’s very interesting and a very different cycle with the housing prices the way they are with rates rising. More to come. It’s going to take a lot to get the housing overheated under control again.

Don't follow stupid or short-term thinking when you're in the mortgage industry. Share on X

From a legislative standpoint, I wanted to make sure everyone had a chance to hear Marcia Fudge on CNN. The headline of the discussion was about a Black couple who was suing for an appraisal problem. What happened was that they have an appraisal done on their home that came in at about $425,000. What they did was what was called Whitewash the Home. They took out their family photo and had a White friend of theirs or a White colleague be the one to be there when the appraiser showed up.

That second appraisal came in at over $300,000 higher. Marcia was brought in to talk about cases that were cited. The case isn’t settled yet. This is a lawsuit that came out. For those of you who don’t know, Marcia Fudge is the Secretary of the Department of Housing and Urban Development. The discussion led to what is HUD doing about this? She referenced what’s referred to as PAVE group. It’s the Property Appraisal and Valuation Equity task force that was put together. They published a report back in March 2022 that has some interesting data.

These entities are these agencies that pulled together this task force. Everybody’s included. The appraisal subcommittee is involved in the Federal Reserve, CFPB, Department of Ag, Department of Justice, Department of Labor, VA, FHA, FHFA and NCUA. It’s a huge task force to be able to take some action on what was identified as needs for changing in the testing for appraisers, needs and changes for the training that they received that did appear to be some issues that have to be addressed to make sure we avoid what might be some cases deliberate and in other cases, unconscious bias going on within appraisals.

There’s more to follow on that but since that was in the news on CNN, I thought I’d add a little background about that task force that was put together. What Ms. Fudge was talking about wasn’t action that they’re taking as a result of the lawsuit. It’s action that has already been started back in March 2022. I want to clarify that point.

Last but not least, for our readers, please keep in mind that USDA has a proposed rule out there. You have until October 3rd, 2022 to comment but do not delay. Get it done in September 2022 because football season is going to be started by then and you’re going to forget all about it. High school football started. Please go out there and comment. We do want USDA to put the gas pedal on allowing delegated underwriting authority for lenders. Please check that out and respond.

It’s fun to watch those games. We love football season. I’m having a new covered patio with a dropdown TV and heaters out there so we are going to extend our football-watching season outside. You get too rowdy inside so we’re putting it outside. I was kicked out of the house so we said fine. Buy living room furniture, put it outside, put heaters out there and look at the beauty. That’s how you do it. Enjoy some good Barbie and a long-neck bottle of beer. We drink beer. Let’s get over to Allen Pollack who joined us from sunny Florida. Talk about the journey of buying a home. This guy has been through it. Allen Pollack, it’s good to have you here. Allen is here with our weekly pick update.

I got to tell you, David, there’s more action on the home-buying process. Another home in my neighborhood popped up way overpriced. They had at least 40 showings in 1 day and they went with 4 offers. I don’t know which is selected when the market is normalizing. The reason that that house went off the hook or off the chain, whatever you want to call it, is because it was staged.

That’s interesting. Staging is such a big part of what it can do. It costs money to have that extra but you can usually get it back in spades.

It was over $500 a square foot when everything around it is the high 3s and 400. We’ll see if the deal closes and what happens. There is some weird stuff going on out there.

We’re watching other properties up in Bellevue, Washington where my brother sold his home. All these listings are coming and they’re sitting there. There are markets. Florida is a hot market still. All those New Yorkers are trying to get up that blue state and get down to a good red state.

I’ll give you one funny joke. My daughter went off to college and she’s in her second week of school. I said hi to her and I had no intention of sending her a joke. She messaged me and she goes, “Any dad jokes today?” I said, “What did the buffalo say to his son when he dropped him off at college?” She goes, “What?” I said, “Bison.” That was a good dad joke for this episode.

That’s good. What do you have for a tech update? Talk about the digital conference that’s coming up. I want to get your thoughts on that.

I’ll give you my thoughts. I won’t be there. I’m not a sponsor in 2022. As an industry, we are teched out at the moment. It’s a good time for vendors to get together and talk about partnerships and better ways to serve our customers. For me, on the technology side, it’s not a conference at this moment and time that is worthwhile, especially with the national coming right around the corner. There are so many prosperous conversations to have in planning for 2023 and synchronization with vendors and customers.

The term conference doubt is not the right time and place as what some people have said. Some people are excited to be there and it is worth their time, effort and money. I’m not negating that. There are more layoffs in the industry. I want to put it out there that there are a lot of places to go. I am hiring tech people. Feel free to reach out. You can connect with me at Allen@TMS-Advisors.com. Separately, somebody reached out to me and asked, “If it is the time to put your technology team together as a lender, what do you do? Bank or non-bank, whom do I need? What’s the right team to have?”

We’ve talked a lot of times in the past about CTO, CIO and CISO, which is Chief Information Security Officer. What I want to talk about in this episode is outside of those roles, if you are looking to put a team together and maybe you’re going to do some light development or integrate something on the back end like your CRM, you need certain individuals on your team. I’ll bring up who they are and what they are quick but I want to bring up the most important thing that you need and that is going to be a tester.

You need somebody that can understand the workflow from your point of view. They can bring in the vendor’s point of view and test the technology or the interface and make sure that it is adaptable and it works. Also, the compassionate level of a user to technology. How we use technology doesn’t add a burden. Some things are built and planned out well but they don’t get used well. The quality assurance tester is one of the most important.

 

The second most important is the person. I’ll tell you why it starts with the two. It is your business analyst. Maybe you want to call them a product owner. You need someone to understand the business and be able to communicate with the business. They have to work with the tester. The reason that I start with those two if you are a lender is that if you decide to not build and work with your vendors, those are still two of the most important people that you need. Working with vendors, you need those two. That’s a business analyst or a product owner. Working on the quality assurance side, you need that QA person.

As soon as you start getting to build your tech, then you want to start thinking about if you need a designer, which is via the user interface design. You hear UI and UX. Those terms are thrown around. If you’re not too technical, they mean user interface design, the experience of what the user goes through. You have your engineering side, which may be 1, 2, 3 or many more engineers. Then this whole separate conversation which is outsourcing but let’s stick to insourcing.

Finally, you have on top of that a database team or a database person, somebody who understands. We’re beyond the days where your dev person and database are the same because there’s too much involved with data at rest, security and how you manage the information. That’s your initial team. You can call it a pod if you want. You got a product owner or BA. You have an engineer and a tester. That would be the initial team that you set up.

With the way things are going, it’s a perfect time to find great individuals, invest and grow that team. Even if you want to put them through the mortgage school of training, your mortgage 101 or those other institutions within our industry that do that, it is a great time to get them connected, build some camaraderie and get them up to speed on your internal processes. For the gentleman that asked me that question, I thought it was a great topic. I hope I answered it. David, that’s it for this episode. I hope we stirred up some good conversation.

You did. When you think about product testers, I think about a story. Do you remember the Egghead Software stores, Allen? Those were around everywhere. Everyone could go buy it. We used to buy our software at Egghead Software. There was a bunch of them back then. Scott Cook, who was the Founder of Intuit, would sit in the background and go to the store as a tester. He would go in and say, “The best way is let’s wait and watch how the consumer who buys our product handles this.”

He’d wait until someone go over there to buy the software. As they’re approaching the cash register, he would come up and say, “Can I buy that for you? I see that you selected it. My name is Scott Cook. I’m the CEO and Founder of Intuit.” What happened was he will say, “I will buy this for you and give you free support for the lifetime of this product if you will agree to allow us to come home and watch you install it. I got a couple of engineers stuck in the car. The benefit for you is you’re going to get free lifetime support. This is a great product.”

They asked them why they bought it and why went into that. That helped the marketing people. They then watched them tried to install it but they made all these notes of everything. That’s why that product has done as well as it has for so long because they were so intentional about creating the UX, the user experience, and creating it in such a way that it was flawless and so easy. One of the things that quickened into it is what it is. Alice, what are your thoughts on Allen’s report? Anything you want to add?

No. I was trying to think through what your comments were about following your customers to understand what their real experience is. That is so key and it takes a lot of time. People get anxious. They want to go perhaps by what the loan officer thinks the borrower needs in the product but doing that consumer view testing is so critical for any of the technology. I would agree with you, Allen, when it is technology overload and we have five things in the stack we have to try and figure out. I thought your perspective was very interesting.

Doing consumer view testing is so critical for any technology. Share on X

Thank you. There are college courses and degrees in the way that people in technology interact and understand what emotionally affects somebody and their success rate in using technology. It plays true to the largest consumer purchase that somebody will ever make. It’s something to think about.

Marc is only two hours away from getting a PhD in Psychology or Family Counseling. Marc, what are your thoughts?

Seeing a course like that is very important. In education and I can do consider myself an educator, we have to look at all the dynamics that are affecting what our people are going to see when they walk into the employment environment. I certainly believe that what you brought up is a good example of that. If we don’t prepare people leaving college to be able to deal with those things when they go into the work environment, it’s going to lead right into what I’m getting ready to talk about in my program.

If you don’t plan to succeed, you’re planning to fail. That’s a good example of it because you got to arm people with the tools. They need to do their job in an appropriate manner and understand what’s happening around them. There probably needs to be a lot more implications that need to be done in other fields of education too, not just in technology. I’m glad to hear that’s happening in technology. I know a little bit about that but I’m very glad to hear that because it’s going to be a real helping tool for people entering technology careers.

Let’s get Mr. Kittle’s thoughts on what Allen’s report is. Mr. Kittle, your thoughts.

It’s a great report. I don’t have anything to add to that. He’s spot on as he usually is.

We sometimes question his humor but we do love his report every time.

I’m not even going to talk about the joke he said. That was probably not in the top hundred.

I do appreciate the feedback but David, I’ll tell you. My school of jokes where I learned them is the same place where Les Parker learned how to sing.

Thank you for the tech report, Allen. Les does have a gorgeous voice and he is one talented musician. The song choices he makes are something else that’s just not so Les Parker. That wraps up the tech report. You can reach Allen Pollack via email at Allen@TMS-Advisors.com. Let’s give a word in for your product that you also sell. You also work with a tech company, one of the leading ones. Go ahead. Shout it out, Allen.

I am the Chief Product Innovator at OpenClose. We’re a loan origination system. We do all this fun stuff that we talk about.

He also consults with us in his spare time. How does he have spare time? He has programmers he manages overseas. I don’t know when the man sleeps. He’s trying to help buy a home. Good luck with that. Allen, thank you so much. Let’s get it over to Marc Helm. One of the most important topics out there is loan servicing.

Marc, we’re so grateful. It was Jack’s idea to start these two additional segments and we’re still thrilled we did, David Kittle’s production segment and yours on the servicing. Servicing is at the end of the caboose and so is the process. We have you at the end of the program but certainly we saved the best for last.

Thank you, David. It’s interesting how the last segment played into what I want to talk about. I used the statement, “When you don’t do proper planning, you got problems.” Failure to plan is planning to fail in my book. It goes for servicing. Too many people are failing to plan for servicing. That’s what I want to spend time talking about that day and the different segments where it’s applicable inside the servicing arena.

One of my pet peeves in a down market is that as we try to cut costs inside organizations, it’s one thing to cut processing people in backroom operations for origination and loan officers. When they start cutting into the servicing staff that’s needed to form daily and take care of the customers because they’re looking for a decreased cost everywhere, that is a real failure to plan. It can be a nightmare for customers.

 

I want to put that little seat out there for those of you that have a servicing portfolio and you’re thinking about taking some staffing out of servicing to help you with your cost overall. Be very careful what you do and how you do it because it will have a long-term critical effect on the company. Let me talk a little bit about this planning cycle that we have in servicing. There are many elements that you have to plan for when you’re going to be a servicer.

It’s not necessarily a list you have to follow item by item in a certain order but there is a list you have to follow. I’m going to talk in generalities about those items so you can have an understanding. I’ll give you a couple of blurbs about each one to make you understand the full impact of it. Staffing comes to mind as one of the chief things. Not all servicing operations that started up have started in areas where there have been clinical servicing people in that area.

You not only have to look for the fact that you might have to recruit from outside of your city or state. That involves an extra cost in bringing servicing people in when you’re relocating them in to do that. You need to be planning on where is the proper place to have servicing portfolios. You’ve seen that happen quite immensely over the years if we’ve seen the consolidation of servicing in certain areas of the country.

There’s Midwest consolidation and Western consolidation. Dallas was a big servicing hub and still is for several years. Houston at one time was. Atlanta has been. A part of Charlotte, North Carolina and Rock Hill, South Carolina has a large servicing hub. Also in New Jersey and New York, Long Island area. You see those tapping in different areas for the reason I talked about where you can have access to people.

People look for opportunities and that allows them to find opportunities right in their backyard. It’s very important to plan your staffing. Using professionals to help you find that staffing is probably one of the best roads you can go to. They will weed out a lot of folks that you might not want to consider and give you the best possible candidates so we go down. I salute my comrades on the phone here who do that. As part of the services they provide, that is something that can be very valuable to the customer.

The next thing is looking at facilities, which are a big deal. We’ve seen so many companies cut back on the use of facilities because of COVID and the fact that they have so many people working at home and that so many people are using outsourcing. One of the things you have to deal with upfront before you go make a commitment to servicing in a facility is the same thing you have to do in mortgage production.

You don’t go lease office space for mortgage production unless you believe in your heart it’s going to survive the term of the lease. You don’t want to get stuck with those losses on the back end if it does not. It’s the same thing about servicing. Why would you want to walk in and create a lease for 50,000 square feet if you’re pretty sure you’re going to do some outsourcing, remote working and other things to reduce the staff being in-house?

If you’re going to do that stuff, you need to understand what you’re doing up front and what your plan is so you don’t lease more space than you need but certainly have the space necessary for growth that you might need down the road. I’m going to save the remote employee and the outsourcing for a whole different topic. That’d be a standalone topic by itself as we talk about things later on.

The third thing I want to talk about is systems. Numerous servicing systems are available out there. There’s one servicing system that services over 50% of the loans in the industry. There are lots of other servicing systems and homegrown servicing systems inside companies. The most important thing that I want to tell you about servicing systems is they can cross the T’s and dot the I’s. That is the most important thing.

Backing up from that, the next most important thing is continuity, which comes from loans moving from your origination system into your servicing system. You want that to be a systems process with appropriate quality control and not a manual process because that leads to all problems. You show me a shop that’s got problems with servicing and I’ll show you a shop that probably did not do a good job of moving the data on over their loans before they started servicing.

When you’re looking at servicing systems, run your test, call some of the people in the service tied into the origination system to a servicing system and ask them how it has worked for them and the interfaces have worked. That should be a major ingredient in how you decide which servicing system to go to. The next thing that’s very important to me is good attorneys. It’s good to have attorneys who route you through the contracting process, not only your servicing system but your facilities.

We’ll talk about that in a different segment later on of how we utilize our attorneys to make sure we’re compliant, doing things the right way and dealing with us on our exceptions. Issues that come up are not dealt with. It involves attorneys who can turn it into a nightmare for servicing if they’re not dealt with efficiently in a manner that’s appropriate for your company and end up in the best possible solution for you as you go down the road.

I want to put a plug-in here. I won’t mention any names. I had a gentleman that worked with me. He was a collaborative person. He kept me out of trouble a lot of times. After he left the company, he went out and did numerous things but he partnered up with a gentleman and they filled a compliant document database. Banks are signing up user services, new banks, small mortgage companies and large mortgage companies because it puts the compliance of documents in internal company. All they do is work on compliance and documents and make sure they keep those documents updated with state requirements.

That’s something new that’s happening out there. They’re probably one of the biggest and maybe one of the best at doing this. If I ever started a new mortgage company, it’s something I’d want to consider. Going into that, the most other important items that we can talk about are the QC process and compliance process. It’s a big deal to make a decision about whom you want to use for QC and compliance. It’s a big deal to make the decision whether you want to do it internally or contract it out.

First of all, if you’re going to do it yourself, you need to hire people that know what they’re doing. Second, if you do not do that, you need to outsource with people that can do a great job for you and have some specific experience relative to QC. QC and compliance could make you and break you in the lending environment and servicing environment so you need to pay extraordinary attention to that and make sure you cross your T’s and dot your I’s when hiring people or selecting vendors.

QC and compliance could make or break you in the lending and servicing environment. Share on X

David, I’m going to end with that. I’m going to talk next time about vendors, agency approvals, licensing, selecting and having appropriate people in the financial services side of your operations with your CFO and controller to make sure they understand all about servicing before you get into it. Thank you so much for the opportunity to share these things with everyone. I hope they’ll be beneficial to you as you move down the road if you’re deciding to be a servicer.

They’re beneficial, Marc. Can you give us some real insights? I know you’re going to do a whole segment on it but remote servicing customer support people, is this a good thing? Is it looked upon favorably by the agencies or they don’t care? What are your thoughts?

I have had conversations with the agencies. Some of the agencies are concerned about that. I’m concerned about that. It’s hard enough to manage people and get the kind of productivity you wanted for them in an office environment. When you turn people to work at home where the children are playing behind them or they’re distracted getting ready for supper, trying to do their jobs and all these other things, this is a great benefit for the employee.

They don’t have that commute time to work. They’re not spending money on gasoline. For the most part, they should be more focused. Many of them are. If you got the people that weren’t of that focused mentality and you put them in that environment and they can’t manage themselves to be productive, you better have good metrics to manage what they’re doing at home. You also need to be on top of everything they’re doing from a compliance area.

You might end up having somebody you’re paying 8 hours a day for doing 4 hours’ worth of work. You don’t want that so you got to figure out a way to manage that. No one has mastered the art of managing that. I’ve been in this industry for many years. When I think about trying to manage that process of people working remotely, it’s bigger than a bread basket. With all my experience, I’m not sure if I can put all the pieces together and do an effective job so I certainly think it’s something we got to pay attention to.

There’s a lot of pressure to do so but I want to get your perspective on that. We’ll be talking more. I can’t wait. The one guy that wrote back says, “I love Marc’s perspective. I can’t wait. Hurry up, Marc. Get to that part.” We got an audience already cheering you on. That’s good. Mr. Kittle, your thoughts and then to you, Allen.

Nothing to add. Marc is the best. How can you top that?

I agree with David. The only thing I’ll mention is on the servicing technology side staying with compliance, I can only suggest that technology is good but it only gets you so far. You still need people, processes and policies around it, especially when you’re dealing with the consumer and how regulated that servicing side is.

Eighty percent of CFPB complaints are coming in on the servicing side of the business. That’s why you’re trying to get a Fannie Mae, Freddie Mac or Ginnie Mae approvals. Marc can tell you that they’re not going to approve you unless you have someone on staff. That’s why a lot of people are struggling and are saying, “I want to get my agency approval on a servicing retained basis but I can’t find anybody that lives even within 100 miles from me that has any experience.” We got to have them remote.

Marc, there’s going to be a lot of people going to be paying attention to that segment when you offer it up. Thank you so much for being here. I appreciate it. It’s good to have this group. We’ve got some of the best folks here on this show. We’re so honored to have you as our reader here. I encourage you to share this show with others.

We’re averaging nearly 4,000 downloads of this show, probably up over that. We appreciate you. I want to say also a special thank you to our sponsors, Finastra, FormFree, Lender Toolkits, Snapdocs, Total Expert, SimpleNexus and MBA for what they do for us. Thank you, MBA. Also, Lenders One, The Mortgage Collaborative, SuccessKit, Knowledge Coop, Mobility MI, Modex, Mortgage Advisory Tools, as well as DW Consulting. Thank you so much for being here. It’s always a joy to come to you and tell others about it. Have a great time. I look forward to having you back here in the next episode.

 

Important Links

• Marc Helm – LinkedIn
• Jack Nunnery – LinkedIn
• David Kittle – LinkedIn
• Alice Alvey – LinkedIn
• Podetize
• Finastra
• FormFree
• Christy Moss – Past Episode
• Lender Toolkit
• Snapdocs.com
• Total Expert
• SimpleNexus
• Candor
• Mortgage Bankers Association
• Lenders One
• The Mortgage Collaborative
• SuccessKit
• Knowledge Coop
• Mobility MI
• Modex
• Mortgage Advisor Tools
• DW Consulting
• Adam DeSanctis – LinkedIn
• Les Parker – LinkedIn
• Matt Graham – LinkedIn
• Allen Pollack – LinkedIn
• MBA.org/Annual
• Wyndham Timeshare
• Vrbo
• TMSpotlight.com
• Union Home Mortgage
• Allen@TMS-Advisors.com
  • OpenClose